Dollar inches lower as Fed countdown begins

The dollar inched lower on Monday with investors sticking to the sidelines as the countdown begins on whether the Federal Reserve will hike interest rates for the first time in nearly a decade.

The euro edged up 0.1 percent to $1.1350 EUR=, holding on to last week’s 1.8 percent gain. The dollar eased 0.1 percent to 120.42 yen JPY=.

Against a basket of six major currencies, the dollar .DXY eased 0.1 percent to 95.067.

Even the disappointing set of Chinese data released on Sunday failed to stir the market. Growth in China’s investment and factory output missed forecasts in August, raising the risk that economic growth may slow below 7 percent in the third quarter for the first time since the global financial crisis.

“Softer Chinese industrial production and fixed asset investment data at the weekend should keep a lid on AUD and NZD, but markets are looking forward – to the Fed,” analysts at ANZ wrote in a note to clients.

The Fed holds its two-day meeting on Sept. 16 to Sept. 17 and markets are still guessing whether the central bank will hike rates then, or opt for December or early next year.

“It is fair to say that the full spectrum of views is on offer. Clearly this is the most anticipated Fed meeting in a number of years,” ANZ analysts added.

Currency speculators in the week ended Sept. 8 raised bullish bets on the greenback for the first time in about a month, latest figures showed, suggesting perhaps that some in the market are betting on some action.

What the Fed says about the outlook for interest rates will be key for determining the dollar’s trend, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

“More than the question of whether they will or they won’t (raise interest rates this week), I think the focus is the statement and Yellen’s news conference,” he said.

This week’s Fed meeting will be accompanied by the release of Fed policymakers’ latest summary of economic projections and a news conference by Fed Chair Janet Yellen.

For example, even if there were to be a rate hike this week, the dollar could come under pressure if Fed policymakers downgrade their views on the appropriate path for interest rates in 2016 in their so-called “dot chart”, Murata added.

Ahead of the Fed, the Bank of Japan (BOJ) will hold its own policy meeting on Sept. 14 to Sept. 15, with the outcome due on Tuesday.

While there is some talk that the BOJ may expand its already massive monetary stimulus, sources familiar with their thinking told Reuters that there is no mood to take such action this week.

Source: Reuters